Friday, June 10, 2005
Updated: June 13, 8:25 AM ET
NHL deal at what cost?
By Darren Rovell
With the way things seem to be going in the talks between the National Hockey League and the players' union, it appears there will be hockey at some point next season.
But what will be the financial fallout?
It all begins with how many fans will show up for games when play resumes. The most recent work stoppages in Major League Baseball and the NBA caused immediate attendance declines of 20 and 2.2 percent, respectively, and both sports needed at least four years to recover to previous levels.
After a lockout shortened the 1994-95 NHL season to 48 games, the league averaged 50 fans per game more than the 1993-94 season, but never before has a major sports league lost an entire season due to labor struggles.
Attendance will not only dictate gate revenue, but also future sponsor contributions, which make up a significant chunk of local and league revenue.
According to IEG, a sponsorship research and analysis company, the league and its teams lost approximately $230 million in sponsorship deals by not playing last season.
"This was a pretty damaging period of time for the NHL," said Jim Andrews, the company's senior vice president.
Because of the work stoppage, most sponsor deals were carried over one additional year. Coca-Cola, whose sports drink POWERade is the official drink of the league, is in the final season of its deal. Nextel has two years left on a league deal that reportedly averages $3 million per year and Sony Canada and Molson Canada are locked into contracts of varying length with all six Canadian teams.
"If hockey is played at all, we have contract obligations even if the season doesn't resume on time," said Nathalie Masse, spokesperson for Molson Canada.
In most cases, the actual dollars for the rights to the sponsorships are already budgeted, but if the NHL doesn't bounce back, the money committed by these companies to making the sponsorships work, in the form of in-store promotions and other advertising, could be lessened.
"We're not going to let our partnership just sit there," said Michael Robichaud, senior director of sports and entertainment marketing for Nextel, whose title sponsorship deal with NASCAR is the largest in all of sports, at a reported $750 million over 10 years. "We believe that the league can rebound, but no one is kidding themselves into believing that the year off did not have an impact."
Robichaud says that the exact marketing budget for Nextel, which was the presenting sponsor of the league's All-Star Game in 2002 and 2003, hasn't been determined, but just coming back on the ice won't be enough to jump-start things.
"Everyone with a vested interest from the league to the owners to the coaches and players needs to work together," Robichaud said. "This can't just be turned over to a marketing plan."
Although it has been previously reported that sponsors are putting significant pressure on the league to return so that commitments can be made to fall marketing budgets, officials with several companies told ESPN.com that they will simply react whenever the season resumes.
"We're in a holding pattern right now," said Susan McDermott, spokesperson for Coca-Cola.
"When things resume, every partner will be very cautious to feel out the market and I wouldn't expect them to have big NHL promotions," Andrews said. "They have to make sure there are people in the seats and the TV ratings are good."
Lower television ratings could also seriously affect league finances. ESPN already has exercised its option not to broadcast the league's games for $60 million and the NHL's revenue sharing deal with NBC could be devalued if lower ratings force the network to sell advertising at a lower price.
Further damage could occur if companies that might have considered spending money on the league before the stoppage take their business elsewhere. Sony entered into league sponsorship discussions with the NHL before last season, but backed off because the price was seen as too steep, according to John Challinor, general manager of advertising and corporate communications for Sony Canada. Challinor said that the company might reconsider doing something with the league for the 2006-07 season, if this season is played.
"We want to see how things play out," Challinor said. "The effectiveness of a sponsorship is going to be heavily based on good gate attendance and how many fans come back."
Challinor, who is based in Toronto, said he is not sure how fans in the hockey rabid city will embrace the sport when it comes back.
"Baseball was huge in Toronto and then came the strike and people never came back," Challinor said. "But I think the difference here is that the players will come back making less money than before and I think that means something to the fans."
Darren Rovell, who covers sports business for ESPN.com, can be reached at email@example.com.